Modelling Hobson’s Underconsumption Theory

John Atkinson Hobson must be included in the list of leading exponents of the underconsumption theory, which ‘attribute[s] the failure of the total output of an economy to be sold at its cost of production (including normal profit) to too low a ratio of consumption to output’ (Schneider, 1987, volume 4, p. 741). Like other exponents of the theory, such as Lauderdale, Malthus, Sismondi and Rodbertus, Hobson nowhere attempted to present his underconsumption theory in a formal manner, and this has undoubtedly contributed to his theoretical achievement being generally underestimated. Over the past thirty years several economists have attempted to represent Malthus’s underconsumptionist ideas in the form of a model (see Dubey 1962; Eagly 1976; Eltis 1980, 1984; Costabile and Rowthorn 1985). The object of this paper is to perform the same service for Hobson. Section II of the paper gives a brief account of the underconsumption theory as set out by Hobson, Sections III and IV restate this theory in the form of models which are compared and contrasted with the Harrod and Domar growth models respectively, and Section V briefly assesses the relevance of Hobson’s underconsumption theory to current macroeconomic problems.